2.1 Measures of Economic Performance Flashcards
What is Economic Growth?
It is the rate of growth of an economy. It is an increase in the productive potential in an economy
What is Gross Domestic Product?
The total value of all goods and services sold within an economy in a given time frame
What is real GDP and how does it differ from nominal GDP?
Real GDP takes into account the effects of inflation, whereas nominal GDP is the numerical value of economic growth
What is Gross National Income?
It is the value of all goods and services sold in an economy with dividends and foreign incomes added onto it.
What is Gross National Product?
It is the sum of all goods and services bought by a countries citizens, whether that is domestic or foreign citizens.
What is Purchasing Power Parity?
An exchange rate which tracks how much a typical basket of goods costs in one country relative to other countries
What are the limitations of GDP?
It can be inaccurate, it doesn’t take into account black markets and home grown products (developing countries) and when money flows around the system (unemployed people pay tax and then receive welfare payments from this tax)
It doesn’t account for inequalities
It doesn’t indicate the quality of goods and services
Spending doesn’t indicate growth, as it may be put towards defense schemes such as UK in WWII
What are 4 things the UK Measuring National Wellbeing survey asks about?
Worthwhileness
Anxiety
Happiness
Life satisfaction
What is the Easterlin paradox?
Increasing consumption in material goods will increase happiness when basic needs aren’t met, but once these needs are met, increasing material; good consumption will not increase long term happiness.
What is inflation?
A rise in the general price level in the economy.
What is disinflation?
A fall in the rate of inflation
What is deflation?
A fall in the general price level in the economy
What is the CPI?
It is a basket of 710 goods and services the ONS collects and weighs in order to find a price index that represents cost of living as the most consumed goods are in the basket. Goods are weighted and updated regularly.
What are the limitations of CPI?
It doesn’t represent the spending habits of the entire economy as it only uses 710 goods
Doesn’t take into account housing costs
It is not updated regularly enough to be accurate
Information gaps
What is RPI?
CPI+Housing Costs
What are the 3 types of inflation?
Demand Pull
Cost Push
Growth of Money Supply
What is indexation?
This is when the effects of inflation are anticipated so measures are put into place to ensure the effects are not too drastic
What is the Claimant Count?
These are the people who claim social welfare payments
What is the ILO?
A survey which aims to calculate unemployment in an economy, over 16’s take part in the survey and they get placed into one of 3 categories, employed, unemployed or economically inactive. Those who aer unemployed are the people who are looking for and seeking work but not finding it, they have ben looking for over the past two weeks and are ready to work in the next 4 weeks.
What is the Labour Force Survey?
This is a sample of people who are living in homes and classifies people as employed, unemployed or economically inactive using ILO standards.
What is underemployment?
When people aren’t in full time jobs or they are in employment for which they are overqualified for.
What are the five types of unemployment?
Seasonal
Structural
Cyclical
Real Wage
Frictional
What is structural unemplopyment?
This is when due to the shift in the way an industry is structured changes, unemployment occurs in this industry.
What is cyclical unemployment?
This is unemployment due to the stage in the economic cycle the economy is in. Also known as demand efficient
What is frictional unemployment?
When someone is unemployed because they are moving in between jobs.
What is real wage unemployment?
This is when real wages are above the market clearing price so due to some workers being willing to work below real wages, it leads to unemployment for those not willing to work below that.
What is the balance of payments?
It is a financial model which accounts for all economic activity that an economy is associated with and is directly involved in.
What are the different components?
The current account
The capital account
The financial account
What is in the current account?
It deals with trade in goods and trade in services. It is a macroeconomic objective to keep this positive.
